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Georgia beer brewers: State sold us out to distributors

Georgia beer brewers: State sold us out to distributors

Legislation adopted this year gave craft brewers the ability to sell facility tours and give away their product — a kind of backdoor way to actually sell their beer directly to customers, something those brewers have long sought.

After Gov. Nathan Deal signed the bill into law, the state Revenue Department enacted rules governing the tours. Those regulations allowed brewers to create different tour packages at different price levels.

But on Sept. 25, the department issued a “bulletin” saying while brewers can offer different levels of tours, the price differences cannot be based on the value of the beer.

Brewers have said they were blind-sided by the change in rules, which came after they had hired additional people and made other investments to accommodate the tours.

Emails and records obtained by The Atlanta Journal-Constitution concerning the change in the tour regulation show that the politically connected Georgia Beer Wholesalers Association, which had fought with the brewers for years to preserve rules that prevent beer makers from selling their product directly to consumers, had advance notice that the Revenue Department was working on the new regulation and had plenty of access with agency officials beforehand.

Officials with the Department of Revenue met with representatives of the Georgia Beer Wholesalers Association and gave the state’s major wholesalers group advance notice that it was working on a controversial regulation the agency issued in September, according to emails and agency records the AJC acquired through an Open Records Act request concerning the new regulation. Brewers, who said they were blind-sided by the new rule and say it threatens the future of the industry.

The wholesalers and the craft brewers have been at odds for years as the distributors seek to protect the long-standing prohibition that bars alcohol manufacturers from selling directly to consumers. With the Sept. 25 rule change, the Revenue Department came down squarely on the side of the wholesalers.

“Whether the (beer wholesalers) invited themselves into discussions with the department, or the DOR reached out to them, the result is completely unacceptable,” said Nancy Palmer, the executive director of the Georgia Craft Brewers Guild. “The amount of access and power that the DOR granted the wholesalers smacks of insider politics and completely undermines the work we’ve put in creating a positive and open relationship with the Alcohol and Tobacco Division of the DOR.”

Georgia is one of the few states in the nation where it is still illegal for drinkers to buy beer at the brewery, either for on-site consumption or to take home. Every state bordering Georgia allows both.

The prohibitions here are protected by the state’s three-tier system of alcohol sales. Manufacturers can only sell to wholesalers or distributors, and they in turn can only sell to retailers.

Helping preserve that system is the close relationship beer and liquor wholesalers have with lawmakers. The wine and liquor lobby spent $5,500 in June hosting lawmakers at its annual convention on St. Simons Island. Wholesalers have contributed at least $587,000 to state campaigns in the past five years, and individual distributors have given hundreds of thousands of dollars more.

But legislation signed into law this year, Senate Bill 63, put the first chink in the state’s alcohol distribution system by allowing the state’s 40 craft brewers to sell tours of their breweries that include a limited amount of free beer at the end.

The Revenue Department issued regulations for the tours on June 26 that said breweries were allowed to charge varying fees for tours. The law took effect July 1, and breweries began offering tours, often with different beers offered with each.

On Sept. 25, however, the Revenue Department issued a new rule, called a bulletin, that said the tour prices cannot be based on the value of the beer offered. After allowing these variable-price tours for months, the agency decreed that a tour based on the price of the beer constitutes a direct sale of beer to a consumer, which is against state law.

The rule change angered brewers, who said they were blind-sided by the change after hiring new staff and spending thousands of dollars on tasting rooms and marketing materials.

Emails obtained by the AJC show that while the agency did not give brewers advanced notice that a change was coming, distributors were well aware that a new regulation on tours was in the works.

On Sept. 14, Assistant Deputy Revenue Commissioner Sean Casey emailed Stephen Debaun, manager of the agency’s specialized tax group, and asked whether Revenue Commissioner Lynne Riley had given him a “green light to release the memo on clarifying language re: tours?” Debaun responded a few hours later that he hadn’t heard anything. Casey’s response: “Thanks. Martin reached out and was asking.”

Martin Smith, an assistant director and lobbyist for the Georgia Beer Wholesalers Association, regularly spoke with agency officials, as did other representatives of alcohol wholesalers. Neither Smith nor Revenue Department officials responded to questions about why or whether Smith was given advance notice of the bulletin.

The records show:

In January, Smith emailed Revenue Department officials a copy of his association’s talking points that laid out their opposition to any legislation weakening state alcohol distribution laws.

In April, another GBWA lobbyist, Skin Edge, scheduled a meeting with several Revenue Department employees. Edge, a former state Senate leader, is one of the Gold Dome’s most powerful lobbyists.

In May, Smith emailed Riley to invite her to the GBWA’s annual convention. While Riley declined, Alcohol and Tobacco Division Director Howard Tyler had the conference on his official schedule.

On June 8, Riley emailed Frank O’Connell, the director of legal affairs and tax policy, to say Edge was scheduled to meet with her on June 11 “to chat about potential regulation changes.”

In June, Smith emailed Riley the association’s objections to an initial slate of proposed rules after the bill passed. Those original rules allowed for varying prices of tours.

Two days later, on June 26, Smith emailed several agency staff members to ask whether breweries could sell tours beginning July 1 if no regulations were issued by then.

On Aug. 13, Casey emailed to ask Chris Luncheon, assistant director for operations in the alcohol division, whether he was in the office, and added, “Martin Smith is asking me.” Luncheon wrote back, “Ha! I just sat down and saw his number in my caller ID for 9:12 a.m. I’m here all day. Going down to Howard’s office now to see if he caught him.”

Meanwhile, Palmer, of the Craft Brewers Guild, on April 1 requested a meeting with Riley. Jason Larkins, the Revenue Department’s lobbyist, told Palmer that Riley couldn’t meet with her until mid-May. The two later set a meeting for May 22.

On May 13, Larkins emailed Riley to say, “as you can see, Ms. Palmer of the Craft Brewers Guild still thinks she is meeting with you and it only took her two weeks to reply to my last communication. Please advise of the appropriate response to her or how you wish to handle.”

Five minutes later, Riley replied to Larkins.

“Would you please advise Ms. Palmer that all DOR personnel are fully engaged in the critical task of implementing revenue programs in compliance with newly enacted legislation, and Commissioner Riley regretfully will not be able to meet on May 22,” Riley wrote.

Palmer said it appears Riley was avoiding her.

“It’s clear now that her office categorically avoided me and the Georgia Craft Brewers Guild, either because they were uninterested or unwilling to hear how the brewers of Georgia were affected by SB 63 and ultimately the new bulletin,” Palmer said.

Revenue Department spokesman William Gaston said it is not accurate to say the agency refused to meet with brewers.

“The department has had DOR officials attend and present at craft brewery functions,” Gaston said. “The department has met with the craft brewers, and all stakeholders, on a variety of issues.”

The brewers guild confirmed that Luncheon attended a brewers conference on Aug. 29. That, however, was a month before the new bulletin was issued.

Hours after the Sept. 25 bulletin release, brewers guild lobbyist John Haliburton wrote Revenue Department officials to say the breweries “have serious concerns” about the new rule and asked for a meeting to discuss the situation.

DeBaun, the Revenue Department’s specialized tax group manager, responded four days later to say “that a meeting will not be accommodated at this time. The Department is firm in its reading of the law as set forth in the bulletin and will not be entertaining any alternative interpretations.”

According to records, internal Revenue Department documents dated as recently as Aug. 5 showed the agency believed it was legal to offer variable-priced tours based on the value of the beer offered. But, by Aug. 26, the department began circulating a draft of the new rule that showed the opposite.

Asked what changed, Gaston said: “I want to emphasize that was a draft. Department leadership had not had a chance to review the draft. Upon review it was determined that rates could not be based on relative value of alcohol per the version of SB 63 that was passed.”